India's sovereign rating was maintained at BBB (negative) by international rating agency Fitch, with a stable outlook. It stated that while India has managed to navigate the significant external shocks over the last year with the help of strengths from a robust growth outlook compared to peers and resilient external finances, inadequate public finances continue to be a challenge.
“We forecast India to be one of the fastest-growing Fitch-rated sovereigns globally at 6% in the fiscal year ending March 2024 (FY24), supported by resilient investment prospects. Still, headwinds from elevated inflation, high interest rates and subdued global demand, along with fading pandemic induced pent-up demand, will slow growth from our FY23 estimate of 7% before rebounding to 6. 7% by FY25,” Fitch Ratings said.
The lowest investment grade rating for India is likewise held by other rating agencies including S&P and Moody's, with a stable outlook. The rating agencies' decision will increase positive sentiment and lower the cost of borrowing for businesses.
Fitch said a strong growth potential is a key supporting factor for the sovereign rating. “Growth prospects have brightened as the private sector appears poised for stronger investment growth following the improvement of corporate and bank balance sheets in the past few years, supported by the government’s infrastructure drive. Still, risks remain given low labour force participation rates and an uneven reform implementation record,” said the agency.